Q1 2023 Lindsay Corp Earnings Call

Good morning, My name is Joe and I'll be your conference operator today.

At this time I would like to welcome everyone to the Lindsay Corporation fiscal year 2023 first quarter earnings call.

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During this call management may make forward looking statements that are subject to risks and uncertainties, which reflect management's current beliefs estimates of future economic circumstances industry conditions.

Company performance and financial results.

Forward looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by followed by or including the words expectation outlook could may should or similar expressions.

For these statements we claim the protection of the Safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995.

Please do note that today the event is being recorded.

I would now like to turn the call over to Mr. Randy <unk>, President and Chief Executive Officer.

Thank you Ann and good morning, everyone welcome to our fiscal 2023 first quarter earnings call with me today is Brian Ketcham, our Chief Financial Officer.

We were pleased to start our fiscal year off strong delivering revenue growth and earnings more than doubled compared to last year's first quarter I'd like to thank our employees dealers and suppliers around the world for their contributions the relentless focus on our customers and execution of our business strategies continues to generate positive results for our shareholders and <unk>.

Ports are mission of conserving natural resources, expanding the world's potential and improving quality of life I continue to be very proud and appreciative of the job they're doing.

Looking at the macro environment.

We continue to see supply chain constraints impacting certain areas of our business. Our teams have done a great job mitigating the impact of these challenges and we expect to see continuous improvement in this situation as the year progresses.

Overall inflationary pressure on raw materials and other input costs have moderated price realization remained strong and even in a competitive market. We remain disciplined in our approach to passing cost increases through to the market.

In the area of technology and innovation.

We were pleased to recently announce our strategic partnership with serious imaging. This addition to feel that expands our smart grid platform and provides our customers additional choices and sources of high resolution imagery and analytics to help them make the best agronomic decisions for their crops, allowing flexibility and customer choice is a fundamental part of our.

Imagery strategy, and we anticipate additional strategic partnerships in the future.

Turning to irrigation market conditions.

We continue to see strong market fundamentals in the north American market, including high commodity prices, leading to record net cash farm income in 2022.

Drought conditions have eased somewhat in the far west, but we're seeing conditions worsened year over year in our core Midwest markets, including Nebraska and Kansas.

This highlights the importance of irrigated agricultural and should be supportive of a strong market.

Customer sentiment is cautious at this stage due mainly to future concerns about profitability of the 2023 crop and rising interest rates. This may temper market upside, but we don't expect this to create a significant headwind at this time.

In the international regions, we see the same strong market fundamentals connected to global commodity prices and farm income, having a positive impact in the developed markets, particularly in Brazil. The presidential transition in Brazil has resulted in some market latency that may delay second quarter deliveries, but we don't expect it to impact our full year results.

Project activity and visibility across Central Asia, and the Middle East continues to be strong timing of execution is difficult to predict but we're pleased with what we see in the market and our ability to leverage our global footprint to compete for and win these projects.

Moving to infrastructure.

We expect to see the positive impact of the infrastructure investment and jobs Act and the road safety business November year to date state and local government contract awards for highway and payment projects are up 24% compared to a year ago supporting an increase in construction activity in the second half of our fiscal year.

The full impact of this increase is being somewhat offset by inflation in construction costs.

We continue to actively manage the road zipper sales funnel and completed shipment of our large project in Massachusetts in the first quarter. Our global teams continue to identify applications for the road zipper and both permanent installations and temporary lease applications to help mitigate traffic congestion and provide positive protection during roadway construction.

I'll now turn the call over to Brian to review, our first quarter financial results Brian .

Thank you Randy and good morning, everyone.

Total revenues for the first quarter of fiscal 2023 increased 6% to $176 2 million compared to $166 $2 million in the same quarter last year.

Net earnings for the quarter were $18 $2 million or $1 65 per diluted share compared to net earnings of $7 $9 million or <unk> 72 cents per diluted share in the prior year.

Irrigation segment revenues for the first quarter increased 4% to $152 $1 million compared to $145 $9 million in the same quarter last year.

North America irrigation revenues of $83 $9 million increased 6% compared to last year's first quarter.

The increase in North America irrigation revenues resulted primarily from higher average selling prices as unit sales volume was comparable to the prior year.

In the international irrigation markets revenues of $68 $1 million increased 2% compared to last year's first quarter, including unfavorable effects of foreign currency translation differences of approximately $1 $6 million higher.

Higher sales in Brazil, and other markets more than offset the impact of lower sales in Ukraine and Russia.

As well as Egypt project sales of $9 million in the prior year that did not repeat.

Total irrigation segment operating income for the first quarter was $28 $6 million, an increase of 66% compared to the prior year first quarter and operating margin was 18, 8% of sales compared to 11, 8% of sales in the prior year first quarter.

The increase in operating income and operating margin resulted primarily from improved price realization less inflationary impact on input costs and a more favorable margin mix of international irrigation revenues compared to the prior year first quarter.

The prior year first quarter included LIFO expense of $5 million, while the current year LIFO impact was minimal.

Infrastructure segment revenues for the first quarter increased 19% to $24 1 million compared to $22 million in the same quarter last year.

The increase resulted from higher road Zipper system project sales, which were partially offset by lower road zipper lease revenue and lower sales of road safety products compared to the prior year.

During the quarter, we delivered the remaining $8 million of the $24 million barrier replacement project in Massachusetts that began in our fiscal fourth quarter last year.

Infrastructure segment operating income for the first quarter increased 22% to $3 $4 million compared to $2 8 million in the same quarter last year.

Infrastructure operating margin for the quarter was 14% of sales compared to 13, 7% of sales in the prior year.

Improved current year results resulted primarily from higher revenues and less inflationary impact on input costs compared to the prior year first quarter.

This increase was partially offset by a less favorable margin mix of revenues compared to the prior year first quarter because of lower road zipper lease revenue.

Yeah.

Turning to the balance sheet and liquidity.

Our balance sheet remains solid and our total availability of total available liquidity at the end of the quarter was $166 million with a $110 $6 million in cash cash equivalents in marketable securities and $50 million available under our revolving credit facility.

Through an ongoing focus on working capital management, we expect to improve our free cash flow generation in fiscal 2023, and further enhance our position to invest in growth opportunities that create value for our shareholders.

At this time I'd like to turn the call over to the operator to take your questions.

Yeah.

We will now begin the question and answer session.

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At this time, we will pause momentarily to assemble our roster.

And our first question here will come from Tyler <unk> with William Blair. Please go ahead.

Hey, good morning, Thanks for taking my question.

I was just wondering if you could start off with any updates on larger projects internationally in irrigation and then I'll have one more follow up.

Sure I'll cover that one Tyler and as we said in the script the timing of confirmation the timing of execution is always difficult to predict so really we focus on the number of opportunities that we see and right. Now there is a robust a robust funnel and it's linked to food security population growth we've.

The different times, the pandemic really accelerated a lot of discussions in different parts of the world on improving food security for a lot of governments in countries around the world. So we are pleased with what we see in the funnel, but it is difficult again to predict when we're going to see those are confirmed in and start delivering but the funnel is strong.

Alright, thank you for confirming that and then and infrastructure.

The number of small to mid sized projects for fiscal 'twenty, three how would that stack up against that one large project in Massachusetts for fiscal 'twenty two thank you.

Yes, Tyler this is Brian I would say.

What we see is an increase in the leasing part of our business in the probably the second half of the year as the construction season.

<unk> gets underway and then as we said before some small or medium sized projects on the road zipper projects sided.

Of this business and so in total road safety products, we expect some growth so.

Year over year, we expect to be able to offset that Massachusetts project with growth from some of the other areas.

Okay. Thank you for the color on it that's all I had for today.

And our next question will come from Brian <unk> with Northcoast Research. Please go ahead.

Good morning, and congrats on the Super results, there that to everyone on the team.

So I it looks like what we saw here as you know pricing really holding up.

Well as somebody inflation.

Moderate so I guess my question is that jump in the gross margin.

How should we be thinking about that going forward. Obviously, you never want to be on a call like this telegraphing anything any kind of negative price, but how.

How should we think about price cost and sustainability as inflation moderates and we're up at this.

But this kind of a margin level.

Yeah I think.

Ryan This is Brian .

Where are we.

Finished the first quarter, obviously year over year in a big increase I think you look at.

A good chunk of that attributed to the LIFO negative LIFO impact, we had last year and not as much this year, but still you factor that out the factor the Duluth.

Dilutive nature of the Egypt project last year, and we still had very strong incremental margin improvement and I think what we've been saying since third quarter last year as we've we've gotten the full price realization that we've expected you know theres still some noise and some of the inflation but.

I would say both in North America and in Brazil.

We've seen some margin expansion as a result, as we've come through this.

Gotten through the inflationary impact looking at a strong demand environment. So we've been able to expand margins and.

We continue to look at other opportunities through productivity improvement to continue to grow margins, but.

We're pretty pretty pleased with the progress we've made to date.

Okay.

And then my other one has to do with this issue of obviously 2022 talking full year of fiscal year, rather you had a pretty nice impact of storm damage in replacement demand I'm wondering if you can kind of frame that issue for us as we look ahead to 'twenty three both in terms of.

To what extent that was a driver in any.

Any way that you might be able to quantify the impact there in 'twenty. Two and then also there's been some talk about insurance carriers or at least some insurance carriers dropping coverage of pivots because in part of the claim frequency with with all of that storm damage. So curious if you have any thoughts on how that could impact customer buying decisions going forward.

Forward.

Yeah, we can tackle both of those Ryan looking at storm volume impact last year, I'll, maybe let Bryan quantify that when when I'm through but it certainly will see that difficult comp in our fourth quarter, our fiscal fourth quarter.

You always plan for some storm damage in your volume forecasting and supply chain and labor planning, but last year was really an extraordinary but particularly in the fourth quarter for us I'll, let Brian quantify that relative to insurance or we have seen the same types of discussions and same chatter and we've been personally in contact with them.

Lot of the insurers reinsurers across the industry and there is an ebb and flow here I think just like you see in the insurance market in residential homes. When there is you know disasters in certain parts of the country. Our view now is there is always going to be a market. There is always going to be somebody willing to provide coverage, where it's necessary and even if the economics change.

Slightly on insurance premiums and when you look at that as part of the total cost of ownership compared to the benefits of irrigated agriculture production, we might see some hesitation, but we don't view it as a as a significant headwind. It is still going to be irrigation is still going to be a requirement and a lot of parts of the country and we don't see.

Incremental insurance costs, driving a lot of negative sentiment right now.

Brian maybe quantification on yes, yes.

Yeah, Ryan I think last year in our fourth quarter, we had kind of quantified that exceptional incremental storm damage in the neighborhood of around $15 million in revenue.

And so we would expect this year to kind of fall back into the more traditional storm season, but.

Who knows with the kind of weather.

Changes that we've been seeing but that's kind of how we're looking at things today.

Understood very helpful. Thanks for your time today.

Thanks Ryan.

And our next question will come from Kearney with Gabelli funds. Please go ahead.

Hey, guys. Good morning, Thanks for taking my question.

Right.

With the new partnership with serious imaging.

<unk>.

Curious.

That option, you're able to offer to customers well I assume they'll primarily be within the north American market at least initially and kind of what I'm I guess, how do you think about the opportunity longer term to do they have the capabilities to go into some of the other developed irrigation markets internationally, Brazil Western Youre.

And you know how much demand is there relative to the north American opportunity for a solution like that.

Yes, Brad we'd say that the initial opportunities are going to be largely focused on North America and when you look at technology adoption in general for irrigated acreage telemetry coverage. It. It's certainly the penetration rates are higher in North America. So we do see that being a short term opportunity. The good news on technology like this is.

It is incredibly scalable and I think the ability for us to leverage our channel leverage our current installed base. It does create some significant opportunities in imagery is really in the early innings in our view and there are a lot of regional strengths. Even if you look at just the north American market that some some companies are stronger in some parts of the country relative to others. So that's really a key.

Part of our strategy to offer choice for our customers and we're very excited about what Sears is going to do for our customers and we do see some growth opportunities, but we will start in our view with a strong base here in North America.

Terrific. Thanks, so much Randy.

Is that right.

Yeah.

Our next question will come from Brian Wright with Roth Capital. Please go ahead.

Thanks, Good morning.

Hoping you could provide a little more color on just the backlog and you said it was kind of impacted both segments.

Is there a way to think about it in North America versus South America, and then just just magnitude kind of.

Comparing the segments in the in the backhaul changes.

Yeah, Brian .

When you look at the year over year comparison, I would say.

Last year's backlog.

In North America, and in Brazil, primarily were driven by <unk>.

Still having some pretty significant.

Price increases, which generally pulls volume forward.

Into the backlog I would say with where we're at this year with more stability and inflation and then our prices.

Reverted more to the traditional kind of selling season and the timing of the backlog. So that's the biggest thing year over year, which is affecting both North America and international backlog, there and on the infrastructure side I think as we end our first quarter were.

The winter of debt.

Construction season is really winding down so that you know backlogs typically pretty low at the end of November so nothing nothing significant.

From our view and what that means for future future results, which result, we've always said the backlog isn't necessarily the strongest indicator of what the next couple of quarters are going to look like.

Oh, great. Thank you so much for that clarification. Thank you.

Okay.

Okay.

And again, if you have a question. Please press Star then one.

Our next question here will come from Chris Shaw with <unk> Crespi Hardt. Please go ahead.

Hey, good morning, everyone Chris.

Christine in irrigation you might have given it but could you what was the volume growth and pricing growth during the quarter.

Yeah. So we said the volume was comparable to last year. So.

Pretty much flat I think that debt.

Pricing.

It's probably in that 7% to 8% range and then there are some other changes that brought the overall down to 6%.

Got it and then.

So you have the infrastructure the road zipper, the new roads the permission that you introduced this week.

I was just looking at the I guess the news there that youre going to have two machines now that are available I forgot the name like gentlemen, Jim and I and tight and I didn't really understand what the one of the smaller one was bigger but I didn't really understand the difference I guess, maybe other applications or customers or I could tell if one was for leasing or buying could you just go into that a little bit more.

Yeah, I mean, we've always had.

A few different models of road zipper, depending on the application and so when it's a lease situation, which is going to be part of a construction project.

Let's say a little doesn't have quite the.

All the options and things like that that are permanent installation would have so.

Really from a branding standpoint.

Have.

Come out with the two two brands as we've went through the refurbishment and redesign of the redshift from machine, but we've always had multiple.

Types, one specifically for Japan that we have produced Hawaii was another classification.

Where it could move the road.

Barrier two lanes, so that part of it's really nothing new that the big thing was just the redesign and some of the additional options that are now part of the machine.

The New York, Michigan does that's not like a dozen expand the market you don't have like a.

The new customer base, there wasn't anything like that it was just sort of an iteration of the old ones.

Yeah, I would say, primarily I mean I think it.

I think it's something that we think from a marketing perspective might drive some additional interest.

Nothing.

Game, changing I don't think right.

Great. Thanks, a lot.

Okay. Thank you have a question you May press Star then one to join the queue.

Alright, and with no further questions, we will conclude our question and answer session.

Like to turn the conference back over to Mr. Randy what for any closing remarks.

Thank you all for your interest and participation today, we're very pleased with our first quarter results and look forward to carrying that momentum through 2023.

The infrastructure segment continues to be supported by incremental funding provided by the infrastructure investments and jobs Act. The irrigation segment continues to see strong near term fundamentals due to elevated farm income and longer term secular drivers connected to food security and population growth. The positive ROI provided by an investment in irrigated agriculture will continue support strong March.

<unk> around the world both segments benefit from ongoing investments in innovative technologies that improve customer profitability, while conserving resources and making our roadways safer.

This concludes our first quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2023 second quarter. Thanks for joining us.

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.